Don’t Give Up On Consumers

Every year at about this time, we hear that the American consumer is tapped out. This year the refrain came with gusto because of the sub-prime crisis. The ability to withdraw cash via home equity lines of credit is now gone, goes the argument, so Christmas shoppers will fail to show.

Funny thing is, we heard that last year. The year before that, it was credit card debt that was going to shut down the holiday season. The year before that, it was comments from T. Boone Pickens predicting that we’d seen $40 oil for the last time and that we’d one day get to $60. Such high oil prices were bound to eat up all the extra money in consumers’ pockets, so they’d have less for shopping. Sound familiar?

In each case, consumers showed up beyond everybody’s wildest expectations and all was well. That didn’t necessarily spare individual companies. Last year, for instance, was Wal-Mart’s worst holiday season on record, but that didn’t kill the rest of consumer stocks nor the overall market.

Lo’ and behold, Wal-Mart’s looking a lot better this year. Yesterday, it posted third-quarter earnings of $2.86 billion, an 8 percent rise that beat Wall Street expectations. President and Chief Executive Officer Lee Scott said, “During the Christmas and holiday season, our price leadership position will benefit both our customers and the company. We have set the stage for a successful fourth quarter.”

Expectations are so low for consumer turnout, and stock prices already so low in anticipation of it, that The Kelly Letter is finding bargains in the consumer sector. We bought a leading casual dining restaurant on the cheap, and are looking to buy the leading coffee seller at the right price.

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